INVESTOR PRESENTATION February 2018 IIVI Page 1
Safe Harbor Statement Matters discussed in this presentation may contain forward-looking statements that are subject to risks and uncertainties. These risks and uncertainties could cause the forward-looking statements and II-VI Incorporated s (the Company s ) actual results to differ materially. In evaluating these forward-looking statements, you should specifically consider the Risk Factors in the Company s most recent Form 10-K and Form 10-Q. Forward-looking statements are only estimates and actual events or results may differ materially. II-VI Incorporated disclaims any obligation to update information contained in any forward-looking statement. This presentation contains certain non-gaap financial measures. Reconciliations of non-gaap financial measures to their most comparable GAAP financial measures are presented at the end of this presentation. Page 2
Origins of Our Company Name TWO SIX Refers to groups II and VI of the Periodic Table of Elements. S Sulfur Zn Zinc Se Selenium Cd Cadmium Te Tellurium Page 3
Since 1971 1971 We Started In Saxonburg, PA 1987 2017 Pittsburgh Saxonburg IPO 30th Anniversary since the IPO Francis J. Kramer(Left) and Dr. Carl J. Johnson(Right) Saxonburg Campus in 1997 Page 4
Our Footprint North America Europe Asia 2,000+ 500+ 7,500+ World Headquarters Manufacturing and R&D Facilities Global Sales Offices 10,000+ Worldwide employee 44 Worldwide Locations 14 Countries Page 5
Our Company Structure Laser Solutions Photonics Performance Products Page 6
Vertically Integrated Manufacturing Platforms Industrial Materials Processing Optical & Wireless Communications Advanced Materials & Military 3D Sensing & IoT Emerging Technologies Page 7
How We Use Our Platforms to Serve Our End Markets Industrial Materials Processing Optical & Wireless Communications Advanced Materials & Military 3D Sensing & IoT Emerging Technologies Reported Segments FY17 Revenue Q2FY18 Revenue Q2FY18 Op Margin GAAP Q2FY18/ Q2FY17 Revenue Growth Industrial (Automotive) Fiber Optic & Wireless Comm. Military Semi Cap Life Science, Consumer, Other Laser Solutions $339M $110M 9% 35% 61% (5%) 9% 4% 6% 20% Photonics $419M $111M 15% 10% 10% 81% 0% 3% 6% Performance Products $214M $61M 10% 24% 16% (2%) 13% 37% 19% 15% II-VI Consolidated $972M $282M 12% 21% 31% (2%) 38% 10% 8% 13% Page 8
Over 4 Decades of Continuous Growth Average Organic Revenue Growth 7% over the last 10 years $972 Over $1B* FY1987-FY2017 Revenue PAT Cash Flow from Ops R&D Cap Ex $7.4B $0.8B $1.2B $0.4B $0.6B Cumulative $28 $38 $53 $61 $62 $74 $123 $114 $128 $143 $187 $224 $225 $316 $292 $333 $487 $516 $551 $683 $742 $827 IPO 1987 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Micro-optics Vergo Optics ZnSe Growth Laser Power Corp UV Filters Laser Power Corp Selenium Refinery Pacific Rare Metals Micro-optics Photop Technologies Optical Channel Monitors Aegis Lightwave Optical Amplifiers Oclaro Optical Amplifier Compound Semi. Wafer Fab Kaiam Laser Limited(U.K. Fab) Micro-optics Lighting Optical Silicon Carbide Litton SIC Group Thermo-electric Coolers Marlow Industries Metal Matrix Components M Cubed Technologies Epiwafer Foundry Epiworks Acquisition History IIVI Laser Processing Heads Highyag Conformal Patterning Max Levy Autograph Semiconductor Lasers Oclaro Semiconductor Laser Military & Aerospace Optical Systems LightWorks Optics Advanced Coatings Oclaro Optical Coatings Faraday Rotator Integrated Photonics Direct Diode High Power Lasers Direct Diode GaAs Wafer Fab Anadigics Page 9
Recent Platform Acquisitions COMPOUND SEMICONDUCTOR DEVICES: AIMING BEYOND LASERS VERTICAL INTEGRATION & SCALE COMPOUND SEMICONDUCTOR LASERS OPTICAL COMMUNICATIONS & ACCESS TO CHINA MARKET 2010 2013 2016 2017 Page 10
Megatrends Internet of Things Ubiquitous Connectivity Industry 4.0 Big Data Consumer Electronics Robotics Renewable Energy Next Generation Defense Systems Low Emission Vehicles Page 11
SiC Substrates for Wireless Communications Share of the Projected Annual $200 Billion Investment In 5G by Country Starting Around Year 2020 US 28% China 23% Japan 11% Germany 4% U.K. 3% Source: Bloomberg Business Week SiC for High Frequency GaN Electronics Market CAGR ( 17-22): +15% Source: Yole Page 12
SiC Substrates for Power Electronics Electric Car Announcements GM 20 all electric cars by 2023 Ford 13 models by 2023 Toyota & Mazda U.S.-based plant by 2021 Daimler /Mercedes-Benz Electrify entire portfolio by 2022 Renault/Nissan/Mitsubishi 12 All-Electric cars by 2022 Jaguar Land Rover Electrify (HEV/EV) all lineup by 2020 Volvo Electrify entire line by 2019 VW/Audi/Porsche EV/HEV by 2030 Source: Mashable SiC for High Power Electronics Market CAGR ( 17-21): +23% Source: Yole Page 13
Laser & Micro-optics for 3D Sensing * VCSEL: Vertical Cavity Surface Emitting Lasers VCSEL Market CAGR ( 15-22): +19% Source: Markets & Markets Page 14
Opto-Electronics for LiDAR Self-driving car availability by car manufacturer Tesla 2017 GM 2018 Hyundai 2020 Renault-Nissan 2020 Toyota 2020 Source: AXIOS Volvo 2020 Daimler 2020 BMW 2021 Ford 2021 Honda 2025 Laser Diodes for LiDAR Market ( 17-22): +20% Source: Strategies Unlimited Page 15
Laser Optics & Precision Ceramics for Extreme Ultraviolet (EUV) Lithography Front/Back End Processing System EUV Source System Beam Transport System CO2 System EUV Lithography System EUV Lithography Systems Market CAGR ( 16-22): 9% Source: Allied Market Research Page 16
Differentiated Product Portfolio for Industrial Lasers Laser Remote Welding Head Direct Diode Laser Engine Fiber Lasers Direct diode Lasers Broad portfolio of components including: pump lasers, high power combiners, acousto-optic modulators, high power isolators, gratings and micro-optics. Fiber Lasers Market CAGR ( 17-22): +8% Direct Diode Market CAGR ( 17-22): +7% Source: Strategies Unlimited Page 17
Optics & Optoelectronics for Datacenters Z-Block Datacom Optical Components Market CAGR ( 17-22): +25% Page 18
Leading Edge Subsystems for Intelligent Communications Networks Optical Amplifier Laser Chip-on-Carrier Assembly Thermoelectric Cooler Optics Passive Components OTDR Optical Channel Monitor Optical Communications Market CAGR ( 15-21): +12% Source: Ovum Page 19
Engineered Materials, High Energy Laser and Optics for Military & Aerospace World leader in large sapphire panel output 24,000 sf dedicated facility F-35 Electro-Optical Targeting System (EOTS) Infrared Countermeasure Systems Market CAGR ( 17-22): +8% Source: Strategies Unlimited Page 20
Innovation Strategy BEST PRODUCT Markets Differentiation Performance Products Infrastructure Business Model Page 21
Financial Trends Booking/Revenue/Backlog Financials $1,072 $972 $875 $827 $762 $742 $543 $547 $399 $404 $242 $290 36.6% 37.8% 17.3% 18.1% Margin Performance 40.0% 39.7% 19.5% 19.1% 10.4% 11.1% 11.9% 11.5% FY15 FY16 FY17 6M FY18 Booking Revenue Backlog FY15 FY16 FY17 6M FY18 Gross Margin EBITDA Operating Margin Cash and Liquidity Cash and Equivalents Cash Flow from Operations FY15 FY16 $174M $218M $129M $123M FY17 $271M $118M 6M FY18 $254M $60M Expectations FY17 FY18 Gross Margin 40.0% 38.5%-41% Long-Term Debt (Including current portion) Shareholder s Equity $176M $235M $729M $782M $342M $900M $463M $964M EDBITDA 19.5% 18.5%-22% Operating Margin 11.9% 11%-14% Page 15 details typical industry EPS adjustments Page 22
IIVI www.ii-vi.com Page 23
Reconciliation Tables Three Months Ended Year Ended Dec 31, 2017 Sept 30, 2017 Dec 31, 2016 Dec 31, 2017 Dec 31, 2016 Operating Income $32.5 $29.8 $27.1 $62.3 $50.8 Interest Expense 4.7 3.6 1.4 8.3 2.6 Other expense (income), net (2.0) (0.7) (6.1) (2.7) (7.5) Income taxes 20.2 5.8 7.9 26 15.5 Net Earnings $9.6 $21.1 $23.9 $30.7 $40.2 EBITDA $53.9 $49.4 $48.1 $103.3 $88.1 EBITDA margin 19.1% 18.9% 20.8% 19.1% 19.4% Interest expense 4.7 3.6 1.4 8.3 2.6 Depreciation and amortization 19.4 18.9 14.9 38.3 29.8 Income taxes 20.2 5.8 7.9 26.0 15.5 Net Earnings $9.6 $21.1 $23.9 $30.7 $40.2 Page 24
II-VI Reports GAAP EPS To calculate EPS comparable to some peers, below are the values of typical adjustments used by other companies II-VI Consolidated Summary of Typical Industry Adjustments Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17 Q1 FY18 Q2 FY18 GAAP Gross Margin 87.5 94.3 97.8 108.7 105.9 109.5 Shared Based Comp 0.7 0.6 0.7 0.5 1.0 1.0 Operation Dilution (Inv roll through) - - - 0.2 1.0 1.0 Peer Comparable Gross Margin 88.2 94.9 98.5 109.4 107.9 111.5 Peer Comparable Gross Margin % 39.8% 41.0% 40.2% 40.0% 41.3% 39.6% GAAP SG&A 42.1 43.5 43.3 47.1 50.6 49.1 One Time Costs - - - 0.3 1.0 0.4 Amortization 3.2 3.2 3.2 3.2 3.6 3.8 Shared Based Comp 3.4 3.3 3.8 3.0 5.3 4.4 Peer Comparable SG&A 35.5 37.0 36.3 40.6 40.7 40.5 GAAP Operating Income 23.7 27.1 29.0 35.7 29.8 32.5 Shared Based Comp 4.1 3.9 4.5 3.5 6.3 5.4 Operation Dilution (Inv roll through) - - - 0.2 1.0 1.0 One Time Costs - - - 0.3 1.0 0.4 Amortization 3.2 3.2 3.2 3.2 3.6 3.8 Peer Comparable Operating Income 31.0 34.2 36.7 42.9 41.7 43.1 Peer Comparable Operating Margin % 14.0% 14.8% 15.0% 15.7% 15.9% 15.3% Page 25